In this piece we will analyze the current state of how Bitcoin, Bitcoin Cash, and Bitcoin SV compare to one another in terms of usage and technical interest. This is not to debate the schools of thought behind each network. (11 min read)
The early cryptocurrency days were simple. Industry leaders such as Roger Ver, Charlie Shrem, Jihan Wu, along with the rest of the cryptocurrency community were aligned with the same vision: to promote Bitcoin (BTC) as a peer-to-peer electronic cash system.
Unfortunately, due to disagreements on how to overcome technical inefficiencies surrounding scalability, there were highly contentious debates, and more practically, hard forks, segregating the community. To date, there are three main Bitcoin networks: Bitcoin (BTC), Bitcoin Cash (BCH) and Bitcoin SV (BSV). Everyone seems to have their own opinions of each, but many speculators don’t have a basic sense of how decentralized these networks are, and how to judge them. Is it based on technicalities? Practical usage? A mix of both?
In this piece, we’ll break down why there are three Bitcoin networks and then go through technical metrics for users to analyze when comparing them. The purpose is not to argue over philosophies of each, but instead, show where tangible interest lies and the current state of usage between the three networks.
What’s a hard fork?
For those unfamiliar, we will first briefly explain what a hard fork is. A hard fork is when a protocol’s codebase is changed from the original, forming two different protocols. From here, miners can choose to support one network or the other by directing hash power to validate transaction and secure one of the networks. Tracking where hash rate is being pointed can give users and speculators tangible evidence of where interest from the community lies. The more hash rate, the more support from miners and validators.
Additionally with hard forks, anyone who is holding the coin which got forked will receive an equivalent number of the newly created coin. For example, if you hold 5 X coins, and X coin was forked into Y coin, you now have 5 X coins and 5 Y coins.
Some hard forks are civil and generally agreed upon by the community, and some are highly contentious, splitting communities up, like in the case of these Bitcoin forks.
Now that we understand what a hard fork is, let’s dive into why there are three “Bitcoin” networks.
Why was there a Bitcoin Cash fork?
As the Bitcoin network witnessed a substantial increase in transaction volume, slow transaction times and higher fees became a harsh reality. To overcome these scalability issues, Bitcoin Core’s team (BTC) is relying on the success of layer 2 solutions, such as Lightning Network, to scale. These layer 2 solutions are methods for processing transactions off-chain, to take load off the main chain. Essentially, layer 2 solutions allow users to send funds to one another in a way that should be fairly instant with lower fees, and when they choose to withdraw to a personal wallet, the resulting transactions are broadcasted to the public chain to be processed. Similar to withdrawing coins from an exchange.
Roger Ver, along with Jihan Wu and the Bitcoin Cash community, disagreed with this direction. They believe all transactions should be processed on-chain, publicly and anonymously according to the original Bitcoin whitepaper. So, Roger Ver and Jihan Wu vocally supported Bitcoin Cash, and a movement began.
On August 1, 2017, at block height 478,559, Bitcoin Cash completed a successful hard fork in an effort to stay true to what they believed to be Bitcoin’s original purpose of being a high throughput, on-chain only, peer-to-peer electronic cash system. To overcome scalability issues without layer 2 solutions, Bitcoin Cash is in support of increasing block sizes to increase transaction throughput capacity. Bitcoin Cash’s block size cap is 32 MB, as opposed to Bitcoin’s 1 MB block size. Bitcoin Core (BTC) team is against raising the block size from the 1 MB limit. Their argument is that a smaller block size keeps nodes cheap (less cost for bandwidth and storage), resulting in more distributed hash rate so the layman can run a node. Layer 2 solutions like Lightning Network is how they will process transactions without increasing the block size limit. While this argument seems valid, we will see that at a practical level, Bitcoin and Bitcoin Cash are on the same playing field when it comes to decentralization.
At this point, there were two popular “Bitcoin” chains, Bitcoin (ticker: BTC) that most are familiar with, and now, Bitcoin Cash (ticker: BCH). A large community of miners did end up switching to the Bitcoin Cash protocol, and from there, off it went.
Bitcoin SV. Another fork?! Why?
Fast forward to November 2018 and history repeated itself with another hard fork, from Bitcoin Cash. Craig Wright, who was part of Roger Ver’s team in support of Bitcoin Cash, disagreed strongly with two technical upgrades that Bitcoin Cash was implementing, so he created his own fork, called Bitcoin SV (Satoshi’s Vision).
The technical upgrades being implemented by Bitcoin Cash were:
1. Canonical Transaction Ordering (CTOR): basically requires transactions in each block to be ordered in a specific order.
2. OP_CHECKDATASIG: adds more scripting capabilities to introduce more functionality similar to smart contracts.
Craig Wright felt these updates deviated from the original “sound” codebase of Bitcoin and introduced security issues.
So, on November 15, 2018, at block height 556,766 a hard fork from Bitcoin Cash was executed. The Bitcoin SV team decided not to employ replay protection, which was a controversial move, making them vulnerable to replay attacks. Bitcoin Cash, on the other hand, does have replay protection. A replay attack is when pre-forked coins are valid on the new chain, so double-spending on both chains can occur. If replay protection was enabled, then users would not be able to spend the same coin twice.
Bitcoin SV was created with an even larger block size, 128MB, all while restoring 4 original opcodes (OP_MUL, OP_LSHIFT, OP_RSHIFT, OP_INVERT) which were actually taken out of the original codebase. For those who don’t know, an opcode or operational code is simply an instruction that specifies a rule or function to be performed and can be used in low-level protocols like Bitcoin, which are not Turing complete.
So, here we are, with three competing “Bitcoins”: Bitcoin (BTC), Bitcoin Cash (BCH), and Bitcoin SV (BSV). BCH and BSV believe in an on-chain only ecosystem, but have different technologies behind it, and Bitcoin is looking at layer 2 solutions. Despite how we feel about these forks and the confusion they’ve caused for the community, let’s dive into each by exploring some key metrics.
Best Ways to Analyze a Network
When speculating on which networks will dominate in the future, whether for investment purposes or not, it’s best to have a basic understanding of what defines success in these projects.
The most important metrics from a technical standpoint are:
1. Hash rate distribution: this describes which miners, or mining entities, are in control of a network. For smaller cap coins, there is likely only one or two authorities in control. The more hash rate is spread out across distinct entities, the more decentralized and censorship-resistant it is.
2. Total hash rate: how much “work” is being pointed towards the network? If a network has a high total hash rate, then you can assume the miners are seeing financial incentive and showing interest in pointing hash power which secures a network. People invest thousands, or millions of dollars in mining equipment and spend countless hours researching these projects, so if there is a clear winner from a technical interest standpoint, then it’s worth taking note.
3. Wealth distribution: is the wealth distributed at all? Or does 99% of the wealth belong to a small population?
4. Transaction amount: is there actual usage? Are people sending transactions and trusting the network?
Of course, investigating the team, roadmap, and goals for a project is important, but if you are comparing projects that are similar, such as Bitcoin (BTC), Bitcoin Cash (BCH), and Bitcoin SV (BSV), then understanding where the most interest is from a technical standpoint is crucial. Don’t forget that blockchain data is public, and there are plenty of excellent resources online to view the data, which allows anyone to weed through news or opinion pieces and view real network statistics for themselves. We will mention some of those resources throughout the rest of this piece.
Hash Rate Distribution Comparison
Let’s begin with hash rate distribution. Below you will see pie charts for each network, representing how distributed each network’s hash power is. The importance of the hash rate distribution metric is that it provides a broad overview of which mining entities are really in control of these networks. It also provides a basis point for those who are not familiar with how decentralized (or not decentralized) these networks truly are.
In an earlier piece, we mentioned that decentralization is not a binary metric, and instead is a gradient measurement, with some networks being more or less decentralized than others. There are many schools of thought which believe that as long as there are more than 3-5 reliable entities, then it is moving up on the decentralized scale. Millions of mini authorities are often not needed, especially if they are unreliable nodes that go offline frequently.
The data above, from blockchain.com, shows that as much as 20% of all hash power is being processed by one mining pool, BTC.com.
The data above, from coin.dance, shows that as much as about 26% of all hash power is being processed by BTC.com.
The data above, from coin.dance, shows that as much as about 35% of all hash power is being processed by Coingeek alone.
All in all, analyzing Bitcoin, Bitcoin Cash, or Bitcoin SV shows that the networks are more centralized than one may predict if they never viewed hash rate distributions before. Large mining pools manage massive amount of hash power. A mining pool is an entity which allows individual miners to pool their hash power together, for a better chance at winning block rewards.
Additionally, despite block size debates and how they affect the cost of running a node, Bitcoin, Bitcoin Cash, and Bitcoin SV are virtually equally decentralized as we see it.
It’s certainly worth noting that BTC.com is a powerful pool that has lots of power in the ecosystem. If BTC.com decides to shut down operations, then miners that are part of the pool can simply switch to another pool, but this will still cause a brief change in network effect. Additionally, BTC.com does have quite a large mining operation on their own.
To stay positive, in our opinion, even 4-5 trusted, distributed pools is better than 100 inconsistent miners. Large pools at least have the incentive to ensure that networks operate properly, so users continue to transact with them, and thus, they get their fees.
Nodes Over Time
Next, let’s take a broad look at how the number of nodes has changed over time on these networks. Ultimately, if the node count is going down, this means there is less interest in support of these chains. A network with 0 nodes would not process any transactions!
The three graphs above are from coin.dance.
As one can see above, Bitcoin Cash and Bitcoin SV have a slight downtrend over time, while Bitcoin has a shallow rising slope. While none have an exponentially rising curve, Bitcoin (BTC) seems most consistent, with a longer history.
Wealth Distribution Comparison
Below we will take note of another important metric: wealth distribution. The below table will show the amount of wealth that the top .01% of addresses control, in addition to some other basic metrics for comparison.
Notice how much wealth is controlled by a top minority. Even for Bitcoin (BTC), .01% of the top wallets account for 42% of the wealth! This has been the case for a very long time, virtually since the early days of Bitcoin. But not to fear, there is plenty of liquidity going around and many large addresses, such as Satoshi’s 1M bitcoin stash has not moved since the first block.
Additionally, for judging the degree of decentralization from both wealth distribution and hash rate distribution standpoints, Bitcoin, Bitcoin Cash, and Bitcoin SV are all on a similar playing field - which makes sense, given they are all forks of each other. So both the wealth and hash rate distribution of all three should be similar.
Who is really dominating…
The information is from coin.dance as of July 31, 2019.
Above all else, it’s most important to understand these networks in terms of dominance percentage. The reason for this is because all of these networks use the same SHA-256 PoW algorithm, which means any miner that can work on a SHA-256 algorithm can contribute to any of these chains. This is why it’s called a “hash war.” Given this, which chain are miners choosing to support? And which chain are users choosing to transact?
It seems that Bitcoin (BTC) currently dominates on all important fronts:
1. Hash rate: 96.2% of Bitcoin miners are choosing to back the Bitcoin (BTC) network
2. Number of network nodes: 83.3% of all public nodes are operating on the Bitcoin (BTC) network
3. Transactions: 65.4% of all new “Bitcoin’ transactions are on the Bitcoin (BTC) network
4. Block sizes: 60.4% of data generated across Bitcoin blockchains are being stored on the Bitcoin (BTC) network
The message here is that Bitcoin Cash and Bitcoin SV, while they receive lots of hate, are not low-quality networks. They simply believe in on-chain only transactions, versus Bitcoin’s layer 2 approach. While both arguments have merit, what matters most from a speculative standpoint is where the masses are choosing to invest, and how that has changed over time.
Usage defines the winner, not theoretical limits or nuanced arguments over technology. In terms of price, usage, and where people are choosing to invest their money, Bitcoin (BTC) is and has been the dominant network thus far.
We hope this comparison gave a basic understanding of where these three networks stand and also enabled you to research some of these metrics for yourself!
Until next time,
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